Each year I establish a basic plan to govern my investing activity based on sectors, segments or locales able to deliver a little alpha to my portfolio. The past couple of years had a focus on the Financial industry with the outcome being rewarded with mergers (small banks) and outsized dividend increases (money center banks). I also began increasing my Canadian allocation in 2015 from 2.5% of my dividends to the current 8.6%. Since the election, I was accelerating the increase in my other foreign holdings to the current 13.6% on two theories, 1) gridlock in Congress would persist as the Republican majority would be too narrow to push through sweeping changes, and 2) this inaction would result in a weaker dollar. It appears I was correct on both counts as the US dollar is now at an eight month low.

With my alpha agendas now too pricey (at least for slam dunk results), a re-prioritization is in order. With the Fed Chairs’ testimony this week indicating that GDP growth of 3% would be difficult, the Trump agenda which projects a higher growth rate is likely in peril – even ignoring the self-inflicted wounds. Without an improvement in the GDP, deficit hawks will be circling. It is likely the last half of the year will present some opportunities, but my view these will be predicated on external events. My eyes will remain open to the USD exchange rate – on strength I may buy foreign issues.

My portfolio allocation between holdings labeled Anchor, Core and Satellite have been imbalanced for a year or two primarily due to merger activity and the acceleration of adding foreign issues. Now that the major mergers have completed, the last this past January, and other alternatives are slim, I figure it’s time to get back to basics.

My going forward strategy can be summarized as follows:

Non-US equities when secured at a favorable exchange rate
a)I have 2 Japanese, 2 Swiss, 1 UK and 1 Swedish company on my watch list in the event an attractive price presents itself

Assess corporate actions (spins, splits, mergers) for opportunities
a) Generally I’m agnostic to splits except when the result would be a weird fractional. I can easily manage tenths or hundredths of shares. Smaller sizes are troublesome so I avoid when possible.
b) Spins (and mergers) are assessed to prevent (if possible) weird fractionals. For instance, I added to my MET position earlier this month as their spin will be at a ratio of 11:1 which would have otherwise delivered a weird fractional.

Assess portfolio for average down and other opportunities
a) An example of this was last months’ purchase of KSU. To this end, I recently updated my Dividends (Div Dates) Google sheet to flag when the current price is lower than my cost basis.
b) An example of “Other Opportunities” would be BCBP which is resident in my Penalty Box due to dilution. The dilution (secondary) might be explained (now) with their announced acquisition of the troubled IA Bancorp. If the regulators provide their seal of approval, it may be time to remove BCBP from Penalty status and perhaps add to this 3.5% yielder.

Add to holdings that are below target weighting
a) This is where I expect most of my second half activity to reside.

Of my 26 stocks labeled Anchor, Core or Satellite; 5 can be considered at their target weight (within .5% of the target) and 4 I consider to be overweight. The remaining 17 will receive most of my attention. As most of these rarely go on sale, I’ll likely ignore price and place a higher priority on yield and events – at least until I’ve exceeded last years’ total dividends.

The following table highlights this portion of my portfolio:

JAN/APR/JUL/OCT

COMPANY

TYPE

PORT DIV%

Kimberley-Clark/KMB

A-(6%)

4.01%

First of Long Island/FLIC

C-(3%)

0.85%

Sysco/SYY

C-(3%)

1.81%

Bank of the Ozarks/OZRK

C-(3%)

0.67%

PepsiCo/PEP

S-(1.5%)

1.51%

First Midwest/FMBI

S-(1.5%)

0.3%

Comcast/CMCSA

S-(1.5%)

8.32%

Toronto-Dominion/TD

S-(1.5%)

1.58%

NOTE: Not all payment schedules coincide completely

FEB/MAY/AUG/NOV

COMPANY

TYPE

PORT DIV%

Clorox/CLX

A-(6%)

3.68%

PNC Financial Services/PNC

C-(3%)

0.30%

Legacy Texas Financial/LTXB

C-(3%)

1.48%

Starbucks/SBUX

C-(3%)

1.07%

Blackstone/BX

S-(1.5%)

2.58%

Apple/AAPL

S-(1.5%)

1.26%

Lakeland Bancorp/LBAI

S-(1.5%)

1.04%

Webster Financial/WBS

S-(1.5%)

0.82%

NOTE: Not all payment schedules coincide completely

MAR/JUN/SEP/DEC

COMPANY

TYPE

PORT DIV%

WEC Energy/WEC

A-(6%)

5.61%

3M/MMM

C-(3%)

0.76%

Home Depot/HD

C-(3%)

7.32%

Blackrock/BLK

C-(3%)

.22%

ADP/ADP

C-(3%)

1.60%

Southside Bancshares/SBSI

S-(1.5%)

0.96%

Chevron/CVX

S-(1.5%)

9.52%

Norfolk Southern/NSC

S-(1.5%)

1.99%

Flushing Financial Corp/FFIC

S-(1.5%)

0.99%

Wesbanco/WSBC

S-(1.5%)

1.14%

NOTE: Not all payment schedules coincide completely

I will provide the caveat that this plan is subject to not only the whims of the market but of my own as well. In addition, this plan may be changed if/when a better idea comes along.

Periodically I encounter an article that hits at the core of one of my strategies. As many of you know, I’m currently a little overweight financials with an emphasis on regional banks. This was not always the case as I (fortunately) exited the sector in late 2007 reentering only in early 2013. My five year pause was bookended by what Richard J. Parsons refers to as the Great Panic of 2008-2009. His article, Finding Alpha In Reliable Dividend Banks(14 June 2017) struck a chord with me and illustrated some of the style I came to embrace for a time. Though I’m not selling my banks, other than special situations, I’m currently not a buyer either. If you are a bank investor (or considering being one) I’d recommend reading his article.

Although he includes some stock payers (CMBH, AROW, SBSI, and FLIC (roundups on splits)) this is not his article’s focus. I’ve written on these before so I’ll exclude them.

His article also points out that only one of the original 30 was acquired which is a slight disappointment when one of my goals is to obtain a merger premium. Several on his list were acquirers which kind of proves my rationale to expand the universe to include potential acquisition targets in my bank holdings a couple of years ago.

Leaving us with his list. One notable point is his geographic analysis. “Certain states are more likely to be home to these reliable dividend banks: Indiana, Texas, California, Kentucky, Missouri, and upper state New York.” This melds with my findings though I attributed this to state regulatory agencies as certain states had disproportionate numbers of bank failures. Therefore I excluded western (California) and southern US banks. To his mix, I found Pennsylvania to be a viable candidate as well. This difference could be that mutual conversions (notably preeminent in PA, NY, NJ, VA and MA) were identified as likely targets by my study.

Another note on his analysis, “…a few critical factors influence long-term success in banking: hands-on expert management…” In fact he elaborates a little on this in the comment stream. A tidbit is both Missouri banks on his list were established by the Kemper family.

So the actual question is how do my portfolio holdings stack up against his list? Half of the thirty are owned. Of the nine owned by Richard, seven are owned (one obtained via a merger). One being in California was excluded by geographic screening. I’m not sure offhand though, why I excluded CBU out of New York. My primary takeaway from his article was a validation of my strategy and I need to further investigate a few.

November was a wild month with a downward trend leading into the US elections and what is being referred to as the ‘Trump Rally’ following the widely unexpected result. All major indexes achieved record highs on November 21st. Fortunately I was able to redeploy the majority of the merger funds prior to the election. This month The S&P gained 3.42%. My portfolio recorded a gain of 11.49% (no normalization) largely reflecting my overweight position in the Financial sector. This increases my lead over the S&P for the year to 17.74% with one month to go.

I chose not to do an October portfolio update due to all the activity which distorted the results a little, especially the XIRR column. The November data has been compiled and should be posted in the next couple of days with the goals update later in the week. The Unabridged portfolio should be next week as per normal.

Portfolio Updates:

Added to DIS

Added to UL

Added to PEP

Added to TD

Added to KMB

Added to NJR

New position – IRM

Added to TRP

Added to KOF

Added to CCE

Added to FLIC (they chose to round up fractionals on a split)

Dividends:

November delivered an increase of 29.1% over November 2015. This was due about evenly between dividend increases (Y/Y) and late 2015 funding.

November had a 2.1% increase over the prior quarter.

Announced dividend increases currently average 12.5% with 71.81% of my portfolio having at least one raise so far this year.

Through November, dividends received exceeded total 2015 dividends by 13.8%.

June was a roller coaster month starting with lackluster jobs numbers and ending with Brexit. In between was the Fed leaving rates unchanged yet again. The sleeper story being the CCAR results being released (partial results here). Notably, Citi received approval to increase their dividend by 220%. Although the DOW lost 871 points over two days, it recovered at month end while the S&P was flat for the month.

Bank of the Ozarks has been a part of my portfolio for a couple of years. I felt it was overpriced when I initially bought it and feel the same today. However, since I bought it has appreciated about 60%. Plus increased their dividend quarterly.

OZRK was not top of the list today but when it dropped 4% midday I decided to pounce, particularly since its’ size in my portfolio had dropped to about 1% and my target weighting is 3%. So my order was executed at $49.85 and should be eligible for January’s dividend.

Top on my list were FLIC and FMBI since they are more underweight – but their prices held. I also looked at KMI and was a little surprised that it was up. Good assets, questionable management and up on the news of a dividend cut? Perhaps it’s short covering. Well I can always initiate a new position – or not.

Final note on OZRK – historically they perform a stock split between $50 and $60 so a s.plit in 2016 wouldn’t surprise me.

Today, I turned on the TV to the news that Duke Energy (DUK) was acquiring Piedmont Natural Gas (PNY) in what appears to be an all cash transaction. Needless to say, this news changed my morning’s agenda to one of research. I first purchased PNY in February 2009 and shortly thereafter enrolled in their DRIP. On price dips I continued to add a little here and there. Last year I came to the realization that their ownership interest in the Constitution and Atlantic Coast pipelines were probably undervalued and increasing my position to 3.17% of the portfolio. Today’s news validated my thought process and opened for trading with about a 39% pop – meaning the market is pricing in a high likelihood of the deal completing 2H 2016.

Next Steps

Verify the terms of the deal. If it is indeed $60 per share cash, then (verified 27 Oct)

Turn off dividend reinvestment. There is no sense in adding to a fully valued position with minimal upside potential (changed 28 Oct – PNY currently purchases shares in a DRIP at a discount to market. As long as this continues, a slight upside potential is provided)

Whimsical Dividends recently wrote a piece on monthly dividends – posing some good and thoughtful questions. So rather than answer in a lengthy response, I figured this would be a good starting point for my weekly (or thereabouts) post.

When I first started investing one of my goals was to build a monthly paying portfolio. This goal was achieved many years ago. But when I retired, I guess I had too much time on my hands so I wondered if it was possible to build a weekly paying portfolio. To this end I have pretty much succeeded.

My research began with Dave Fish’s CCC list. A wonderful repository of data. I also used articles by Dividend House as a resource. Although she’s a recent convert to DGI, and I’m not at all in full agreement with some selections, her style and illustrations make her a must read.

My end result is I have placed 26 companies (of about 105 in my portfolio) into three categories, segmented by quarter, with two payees per week. The result is (almost) weekly payments.